An Urban's Rural View

In 1967, Uncle Sam’s outlays on Social Security represented only 2.5% of the nation’s gross domestic product. Today they’re 4.9%, and the Congressional Budget Office in its latest report on the budget and economy projects they’ll be 6% in 2027 (http://tiny.cc/…).

Social Security, in other words, is devouring a bigger and bigger share of the economic pie that feeds the government’s ability to tax and, ultimately, spend.

This bigger-bites trend is even more pronounced for federal spending on health programs—0.4% in 1967, 5.4% this year and a projected 6.9% in 2027. Obamacare is one of these programs, but the main driver of the trend is Medicare.

With the number of Americans older than 65 rising rapidly, continuing increases in outlays on Social Security and Medicare benefits are inevitable. One thing of special concern to farmers and ranchers in this trend is what happens, as a result, to the rest of the federal budget, including farm programs. Short answer: Almost everything else, farm programs very much included, gets squeezed.

National defense, for example, will continue to decline, CBO says. Defense spending was 8.6% of GDP in 1967, 4.7% in 1992 and 3.1% this year. CBO predicts it will fall to 2.7% in 2027.

Nondefense discretionary spending will also continue to decrease as a percentage of GDP, from 3.2% this year to 2.6% in 2017. Mandatory spending other than Social Security and Medicare tumbles, too, from 2.9% of GDP to 2.5%. These two categories are where the farm bill programs live.

The only category other than Social Security and health that’s forecast to rise is—you guessed it—interest on the national debt. It increases to 2.9% of GDP in 2027 from 1.4% this year. CBO projects the national debt itself will climb from $19.5 trillion this year to $30.7 trillion ten years from now.

These forecasts could, to be sure, turn out to be wrong. But CBO’s expectation of modest economic growth is not out of line with what private economists are forecasting. CBO’s 10-year tax and spending projections are required by statute to assume a simple extension of current laws.

So while CBO’s economic and budget outlook may not be perfect—who’s is?—it’s certainly plausible. No one is likely to contest CBO’s prophecy of rising federal deficits. And there’s little question CBO’s right in its assignment of blame:

“The projected rise in deficits would be the result of rapid growth in spending for federal retirement and health care programs targeted to older people and to rising interest payments on the government’s debt, accompanied by only moderate growth in revenue collections.”

What can be done to prevent the squeeze on federal spending other than Social Security and Medicare? Two things need to happen, argues Washington Post columnist Robert Samuelson. Congressional Republicans need to give up their fixation on big tax cuts. Congressional Democrats need to give up their refusal to cut any Social Security and Medicare benefits.

There are, actually, two other options. The government could adopt policies that slash health-care costs—that would go a long way toward constraining the growth of Medicare. The government could also adopt policies that stimulate faster economic growth—the bigger the economic pie, the easier it is to generate the revenues needed for “older people’s” benefits.

The chances of any of these four things happening seem small. Samuelson’s two stretch political reality; the second two are based on the unrealistic assumptions that we know how to stimulate economic growth and cut health-care costs.

Odds are federal deficits and the national debt will keep growing as spending on Social Security and Medicare expands to serve a rapidly aging population. In this scenario, a squeeze on other spending is practically a given.

Debate on a new farm bill looms, and interest groups representing all three sides of the farm-bill coalition—ag, conservation and nutrition—are rolling out their arguments for why their programs need more funding. No one should be surprised if they’re all forced to face the reality that less money, not more, will be available.

(ES)

© Copyright 2017 DTN/The Progressive Farmer. All rights reserved.